LMP until Social Security at 70

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
johnz1001
Posts: 132
Joined: Tue Jan 01, 2013 7:41 am

LMP until Social Security at 70

Post by johnz1001 » Thu Dec 07, 2017 6:08 am

I'm nearing 62 and getting ready to retire. I want to have my living expenses covered (about 60 grand a year) until I turn 70 and apply for social security. I have a 5 year CD ladder to cover my first 5 years of retirement. For the remaining 3 years I have now a Vanguard IRA short term bond fund. Since it's 5 years out before I need the money from the short term bond fund, should I leave it alone or put it in Total Bond, perhaps a short or mid term TIPs fund, or a Vanguard Income Fund with some stocks? Does it really matter? What would you do? Any suggestions are appreciated.

Just as further background info, I have the remaining portion of my portfolio allocated 50/50 in mostly index funds, and I intend to draw from the remaining portion of my portfolio at a 3-4 percent withdrawal rate once I hit 70 and take social security.

Dantes
Posts: 136
Joined: Wed Feb 25, 2015 6:38 pm

Re: LMP until Social Security at 70

Post by Dantes » Thu Dec 07, 2017 6:23 am

Those remaining three years presumably represent about $180,000. If you pick up an extra per cent of return over the five years before you access those funds your additional return would be just under $10,000. For five years out I personally would go for a conservative blend of stocks and bonds, but I also don't think it makes much difference in the big picture. Its all a balance between risk and return, and how much one wants or need to chase returns.

On a bit of a tangent, does the short term bond fund have a better return than the cd ladder?

johnz1001
Posts: 132
Joined: Tue Jan 01, 2013 7:41 am

Re: LMP until Social Security at 70

Post by johnz1001 » Thu Dec 07, 2017 8:58 am

On a bit of a tangent, does the short term bond fund have a better return than the cd ladder?

It's actually about the same. Thanks for your reply.

bberris
Posts: 765
Joined: Sun Feb 20, 2011 9:44 am

Re: LMP until Social Security at 70

Post by bberris » Thu Dec 07, 2017 9:10 am

It seems like you would be a good candidate for a temporary life annuity. Pay a lump of money, get a monthly payment until 70 or until you die, whichever comes first.

The advantage over a bond or cd ladder is that you don't need to set aside as much cash to get the same income.
Last edited by bberris on Thu Dec 07, 2017 9:16 am, edited 1 time in total.

Dandy
Posts: 4813
Joined: Sun Apr 25, 2010 7:42 pm

Re: LMP until Social Security at 70

Post by Dandy » Thu Dec 07, 2017 9:12 am

Been there done that. I played it very safe using CDs and Savings -- I didn't have the whole 10 years set aside but built it from taxable distributions, tax refunds etc. Rates were a bit higher then and I was looking at a $40k yearly draw, so maybe short or intermediate bond funds will do for the last 5 years- I was not about to put this bridge to SS at 70 at any equity risk.

Worked out fine for me will collect at age 70 next year.

The Wizard
Posts: 11094
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: LMP until Social Security at 70

Post by The Wizard » Thu Dec 07, 2017 9:43 am

I'm 2/3 of the way from retirement at age 63 to age 70.
I annuitized a large chunk at age 63 for lifetime monthly income and then supplement that with monthly withdrawals from remaining portfolio approximately equal to my age 70 SS.

These monthly withdrawals were about 4.5% of portfolio to start with but that percentage has declined due to market performance over past few years.
Those monthly withdrawals are done pro rata from my portfolio, around 50% stocks to begin with but edging up closer to 60% lately, which will be my new upper limit.

I see no critical reason to have a LMP for the entire $60k per year over the eight years since after age 70 you are planning <4% WR.
But this depends on your appetite for risk...
Attempted new signature...

dbr
Posts: 24108
Joined: Sun Mar 04, 2007 9:50 am

Re: LMP until Social Security at 70

Post by dbr » Thu Dec 07, 2017 10:19 am

It would seem unusual for most investors here to have such a large fraction of assets diminished between 62 and 70 as to need any special treatment. I would imagine it might mean someone going from 6% withdrawal before SS to 3%-4% after starting. It would take some pretty fine analysis to see exactly how volatility and return of the portfolio trade off in such a case. I suppose some paper by Pfau or somebody has looked at that. It would be more common sense that someone needing to liquidate half of assets or some such situation would want to look much more closely at how to mitigate risk of doing that during a portfolio down turn. Anyway, the point is I think this is an "it depends" question with a lot of moving parts. I am not an enthusiast for mental accounting about isolated parts of the portfolio.

Dandy
Posts: 4813
Joined: Sun Apr 25, 2010 7:42 pm

Re: LMP until Social Security at 70

Post by Dandy » Thu Dec 07, 2017 11:02 am

I am not an enthusiast for mental accounting about isolated parts of the portfolio.
I get that mental accounting is often a bit of self deception. I'm not always clear about what segregated parts of our assets make sense. For example, emergency funds are often kept segregated in "safe" products which makes some sense even though in a true emergency all your assets can be in play. Same is often said of money set aside for a down payment on a house. Often these set asides are not counted in the "official" investment allocation.

It seems when there is a specific purpose defined segregation is sometimes acceptable, maybe not to everyone. It would seem a longer time frame for the event saved for would push one to move to more risk for a portion of the money- but that doesn't seem to apply to emergency funds.

I always had an allocation to "cash-like" products to cover possible emergencies, loss of job, etc. so when I was forced to retire in 2008 I just continued to keep enough cash-like products for that and with an eye toward assuring that it bridged me to 65 to get a full pension and to age 70 to get full SS. Reaching those goals increased my income floor to approximate my expense needs and provided better income protection for my wife. I guess I could have withdrawn from my other investments while they were down or recovering but the risk/reward didn't seem worth it. My approach made it pretty much a guarantee that I wouldn't have to rely much on investments. So, maybe the growth I gave up with an extra retirement cash position will be offset by less need to withdraw from my nest egg from now on.

2015
Posts: 960
Joined: Mon Feb 10, 2014 2:32 pm

Re: LMP until Social Security at 70

Post by 2015 » Thu Dec 07, 2017 12:32 pm

I agree with dbr in that it depends with a lot of moving parts. It certainly depends on the size of one's PF, one's AA, one's desired annual income, as well as the size of SS after 70. I currently have 1 year in cash and 3 yrs expenses in VBIRX because I'm too lazy to ladder CD's at this time. In a couple years I'll probably ladder CD's until 70. I'm not engaging in full LMP at this time due to PF size, an an already conservative 40/60 AA, and almost max possible SS payout starting at 70. I will probably increase AA to 50/50 after laddering CD's in a couple years due to ability to increase risk at that time. I like to remain flexible and adapt as new information comes in and have the ability to do so.

johnz1001
Posts: 132
Joined: Tue Jan 01, 2013 7:41 am

Re: LMP until Social Security at 70

Post by johnz1001 » Thu Dec 07, 2017 12:52 pm

I'm also using VBIRX for the short term bond fund. Overall, I have enough (8 x $60,000) to make it to 70 and SS. At 70, assuming SS doesn't change significantly, I would be able to fund half of my yearly income needs through SS and other half from drawing 3 to 4 percent of a 50/50 split of my remaining portfolio with roughly 5 percent rebalancing bands.

While having a 8 year stretch of safe assets is highly conservative, I feel comfortable with it. I'm thinking maybe I should protect the latter part from inflation with a TIPs fund but I have read that the short term bond fund tracks inflation pretty well.

Thanks for your reply as well as the other replies above.

Dottie57
Posts: 2368
Joined: Thu May 19, 2016 5:43 pm

Re: LMP until Social Security at 70

Post by Dottie57 » Thu Dec 07, 2017 1:01 pm

johnz1001 wrote:
Thu Dec 07, 2017 6:08 am
I'm nearing 62 and getting ready to retire. I want to have my living expenses covered (about 60 grand a year) until I turn 70 and apply for social security. I have a 5 year CD ladder to cover my first 5 years of retirement. For the remaining 3 years I have now a Vanguard IRA short term bond fund. Since it's 5 years out before I need the money from the short term bond fund, should I leave it alone or put it in Total Bond, perhaps a short or mid term TIPs fund, or a Vanguard Income Fund with some stocks? Does it really matter? What would you do? Any suggestions are appreciated.

Just as further background info, I have the remaining portion of my portfolio allocated 50/50 in mostly index funds, and I intend to draw from the remaining portion of my portfolio at a 3-4 percent withdrawal rate once I hit 70 and take social security.
I am doing much the same. I have Cd's and mm funds for abou 5 years. Then have Stable value funds for 3-4 years. And then a lot of intermediate bond funds. 50/50 allows cation. Still have about 14% gain this year.

Post Reply